Repayment plan: we know how to apply for it and other useful information

Quick overview

• A repayment plan is an agreement whereby you don’t pay the debt all at once, but in agreed amounts and terms.
• However, the creditor may not agree to it, so it’s important to act quickly, propose a realistic repayment amount and provide evidence of your financial situation.
• In the case of tax arrears, the tax office is asked to postpone or stagger the payment of the tax in instalments; in the case of foreclosure, you need to negotiate directly with the bailiff.
• If you default on the instalments, the creditor can usually demand payment of the entire debt and continue with the recovery.

Before you send the creditor a proposal for repayments, it is worth checking that you are actually acknowledging the debt in the correct amount and that you are not making yourself unnecessarily worse off by agreeing. We can advise you on this – we will check the debt, prepare an application and recommend a course of action.

What is a repayment plan?

A repayment plan is an agreement between the debtor and the creditor under which the debtor pays back his or her debt gradually, in set instalments and on set dates. This instrument is mainly used by people in situations where the debtor is unable to pay the entire debt at once, but also wants to avoid legal consequences such as fines or foreclosure. For example, if a tenant incurs a large arrears for electricity or water and does not currently have enough money to pay it, he or she can agree with the landlord or energy provider (depending on who the electricity is written to) to pay the arrears in instalments.

However, it is important to remember that not everyone is legally entitled to a repayment plan, so it cannot be taken for granted and can be counted on in the event of inability to pay.

From a legal point of view, it is not a one-size-fits-all institution governed by a single law. For ordinary private debts, the repayment schedule is negotiated as an agreement between the debtor and the creditor under the Civil Code. It is often also linked to an acknowledgement of debt, so care must be taken to ensure that the exact wording of the agreement is precise.

Tax arrears are dealt with in accordance with the Tax Code, which allows the tax authorities to request that the payment of the tax be postponed or divided into instalments. In the case of enforcement, the situation is governed by the Enforcement Code and depends on the procedure of the particular bailiff.

When can I apply for a repayment plan?

You can apply for a repayment plan in various situations. Both public and private entities can apply. The most common situations for which entities apply for a repayment plan include debts, taxes and foreclosures.

• Debt owed to financial institutions: If you are behind on your loan payments, you can apply for a repayment plan from your bank or other financial institution. Each request is considered separately and you must wait to see if the bank agrees to reschedule.
• Taxes and fees: In the case of tax arrears, you can ask the tax office to spread the payments. The tax office may grant you a repayment plan, but you must clearly demonstrate that a lump sum payment would be liquidating for you.
• Bailiff: If you are facing foreclosure, you can try to negotiate a payment plan with the bailiff. This can partially stop him from taking further action if you pay everything back as agreed.

How to apply for a payment plan?

Applying for a repayment plan is not a complicated process, but it does require some care if you want to be successful with your application and have it approved by the institution. If you have the slightest doubt about how to proceed, contact us for advice.

In our experience, the biggest mistake is to be too optimistic about repayments. The borrower wants to convince the lender that he or she can manage and proposes an amount, but stops paying after two months. This often worsens his negotiating position more than if he had proposed a lower but sustainable payment from the start.

Here we outline just a few steps you should follow:

1. Contact the lender: Before you submit the actual written application, we always recommend contacting the lender first to discuss the possibility of a repayment plan. This can be a phone call or an email communication where you briefly describe your situation and your interest in spreading the debt over installments. This is because if the creditor rejects your idea immediately, you would be wasting your time in the first step by writing an application.

2. The request must be in writing and contain key information such as identification of the debtor, the amount of the debt, the proposed repayments and the reason for the request (e.g. temporary financial hardship). You may also include documentary evidence that supports your inability to pay the debt in one lump sum (e.g. payslips, proof of income, etc.). In the application, please provide your details (name, address, contacts) and identify the creditor. Briefly describe why you are requesting a repayment plan. This may be due to a sudden reduction in income, loss of employment or emergency expenses. Specify the amounts you are able to repay and how often (monthly, quarterly, etc.). Be sure to be realistic so that you don’t unnecessarily specify a repayment that you won’t be able to afford again in the end.

3. Delivery of the application: once you have written the application, send it by registered mail to the lender’s address or use their preferred contact channels (email, online form). Always keep a copy of the application and the confirmation of sending it.

Practical example: a client was dealing with a debt after the end of her tenancy when the landlord billed her for outstanding utility bills and also demanded a penalty. Before we prepared the application for a payment plan, we first checked the lease, the bill and the amount claimed. It turned out that part of the debt was disputed. So the client did not send a general “I can’t pay” request, but a specific proposal: pay the undisputed part in instalments and document the disputed part first. In this way, she avoided making an ill-considered acknowledgement of the entire debt.

Checklist: what should the application for a repayment plan contain?

The following information should not be missing from the application:

• who is making the application and to whom it is addressed,
• a precise identification of the debt,
• the current amount of the debt and, if applicable, its maturity,
• the reason why you cannot pay in one lump sum,
• a specific proposal for the amount and timing of repayments,
• evidence of income, expenses or exceptional living situation,
• the date, signature and method of delivery of the application.

The more specific the proposal you send, the easier it is for the creditor to judge whether the agreement is realistic.

How is the repayment plan approved?

The approval of the application depends on several factors, including the type of debt, the amount of debt and the approach of the creditor. For larger debts or court debts, approval usually requires more time. The creditor may request additional information or documents such as bank statements, tax returns or other confirmations to prove your current financial situation. This process can take several weeks, again depending on the complexity of the case.

Once the repayment plan is approved, the document becomes legally binding. Both parties must abide by the agreed terms – the borrower must make timely repayments and the lender must not apply additional penalties if the borrower makes payments as agreed.

Can I make changes to the repayment plan?

The borrower’s financial situation may change again over time. If it happens that you are unable to repay according to the original schedule, you must inform the creditor as soon as possible. In some cases, the borrower may be able to agree new repayment terms with the lender – for example, extending the repayment period or reducing individual repayments. It is important that you communicate any necessary changes in good time and always submit a new repayment proposal to the creditor.

What if you do not comply with the terms of the repayment plan?

Failure to comply with a repayment plan can have serious consequences. If the debtor stops paying or if payments are not made on time, the creditor has the right to:

• Terminate the repayment plan and demand repayment of the entire debt in one lump sum.
• Impose penalties on the debtor, such as interest on late payments or contractual penalties.
• Take legal action to recover the debt, including execution.

You may subsequently lose all your assets due to foreclosure or face having your bank accounts blocked, further worsening your financial situation. Therefore, always try to keep all your repayments and inform the creditor immediately if there are any problems.

When is a repayment plan not enough?

A repayment plan makes sense especially when you have one or several manageable debts and you know that you will be able to make regular repayments. But if you have multiple foreclosures, don’t have enough income to cover even basic expenses in the long term, or the debt is increasing rapidly due to interest and costs, a repayment agreement alone will often only postpone the problem.

In such a situation, it is advisable to first check whether the debt is legitimate, whether it is time-barred, whether the creditor has correctly quantified the accessories and whether insolvency is an option. For some people, insolvency may be a safer route than several disparate repayment schedules that they cannot meet in the long term anyway.

If you don’t know whether to apply for a repayment plan, defend against the debt, or deal with insolvency, write to us. We will assess your situation and recommend a course of action that will not make your legal position worse.

Repayment plan and foreclosure: Do they go together?

If a person is already in foreclosure, he or she can still take advantage of the option to negotiate a payment plan. In this case, however, it is a specific type of instalment plan that the debtor concludes directly with the bailiff. The bailiff may limit certain steps in the execution (e.g. blocking of assets) on the basis of the instalment plan, provided that the debtor pays the agreed instalments regularly.

For foreclosure, we recommend not waiting for the bailiff to block the account or start selling the property. An attorney can help you assess whether it makes sense to ask for repayments, propose to stop the foreclosure, or resolve the situation through insolvency.

Summary

A repayment plan can be a useful solution if you are unable to pay the debt all at once but are able to make regular payments. In the case of ordinary debts, this is an agreement with the creditor, which is not an automatic entitlement; in the case of tax arrears, the tax office is asked to postpone or stagger the payment of the tax, and in the case of foreclosure it is necessary to negotiate with the bailiff. The application should include the exact amount of the debt, the reason for the financial difficulty, a realistic proposal for repayments and evidence of your situation. Before signing the agreement, be especially careful about the acknowledgement of the debt, the penalties for default and the possibility that the creditor will demand the entire debt at once if you default on the repayments. If the debt is disputed, too high or you have multiple foreclosures, it is worth consulting an attorney first.